ASIC has commenced proceedings in the Federal Court of Australia against Volkswagen Financial Services Australia Pty Limited (Volkswagen).
Volkswagen operates nationally to provide borrowers with consumer loans to purchase new and used cars.
ASIC alleges between 20 December 2013 and 15 December 2016, Volkswagen contravened the responsible lending provisions of the National Consumer Credit Protection Act 2009 (Cth) (National Credit Act) in relation to 49,380 loan contracts by:
- not making reasonable inquiries about borrowers’ living expenses in contravention of ss 128(d) and 130(1)(b) of the National Credit Act in relation to a subset of the loans;
- not taking reasonable steps to verify borrowers’ living expenses in contravention of ss 128(d) and 130(1)(c) of the National Credit Act in relation to each of the loans; and
- not making an assessment in accordance with s 129 of the National Credit Act in relation to whether each of the loan contracts was unsuitable for the relevant consumer, in contravention of s128(c) of the National Credit Act.
ASIC is asking the Court to find that Volkswagen contravened the National Credit Act provisions in respect of each of the loans and to impose a civil penalty on it for doing so. The maximum penalty for one contravention of the relevant provisions during the period of the contraventions was 10,000 penalty units which equates to $1.7 million in the period to 31 July 2015 and $1.8 million thereafter.
The National Credit Act provides consumer protections to ensure that credit providers make reasonable inquiries about a borrower’s financial situation before assessing whether a loan contract will be unsuitable for the borrower.
‘The responsible lending obligations in the National Credit Act are intended to prevent consumers entering unsuitable credit contracts. While ASIC will continue to enforce the law and target poor practices, it is entirely the responsibility of credit providers to properly assess whether the consumer has the capacity to service the loan without incurring substantial hardship,’ said ASIC Commissioner Sean Hughes.
ASIC also alleges that Volkswagen contravened its obligations under s47 of the National Credit Act requiring it to engage in credit activities efficiently, honestly and fairly and to comply the National Credit Act. There is no penalty for a contravention of that provision.
The proceeding will be listed for a first case management hearing on a date to be determined by the Court.
The requirement to undertake a proper assessment of unsuitability under section s128 of the National Credit Act was considered in the matter of ASIC v Westpac Banking Corporation. In that matter the Honourable Justice Perram decided a lender ‘may do what it wants to in the assessment process’ and so does not have to use a borrower’s actual verified expenses in undertaking the assessment (19-210MR).
ASIC appealed that decision to the Full Court of the Federal Court (19-246MR) because it considers the decision:
- is inconsistent with the legislative intention of the responsible lending provisions;
- creates uncertainty as to what is required for a lender to comply with its assessment obligations; and
- may result in an erosion of improvements in responsible lending standards over recent years to the point that lenders are applying bare minimum standards.
ASIC’s decision to bring this action against Volkswagen for contraventions which include the failure to make assessments in accordance with s 129 of the National Credit Act in relation to whether each loan contract was unsuitable, is consistent with ASIC’s position on responsible lending which has been articulated in regulatory guidance since 2010.
On 9 December 2019, ASIC published an updated version of its responsible lending regulatory guidance – Regulatory Guide 209: Credit licensing: Responsible lending conduct (RG 209).
The updated RG209 follows a consultation paper released by ASIC in February 2019. ASIC received 72 submissions, with 64 non-confidential submissions published on the ASIC website in response.
As part of our consultation, ASIC also conducted public hearings. In these hearings, ASIC heard from industry representatives, consumer groups, academics and service providers.
Car Finance Industry Review
Further to ASIC’s work on BMW Australia Finance (16-417MR) and its ban on flex commissions (18-329MR) ASIC is currently undertaking a review into the car finance industry’s compliance with responsible lending, debt collection and hardship obligations. ASIC intends to publish a report in early 2020 and will assess whether further regulatory action is required.